Ritchie v. Anchor Cas. Co.

• Decision Date: 25 August 1955
• Court: California Court of Appeals Court of Appeals
• Parties: John C. RITCHIE, in Individual; John C. Ritchie and John Burroughs, individually and as co-partners doing business under the fictitious firm name and style of All American Nut Co., a co-partnership, Plaintiffs and Appellants, v. ANCHOR CASUALTY COMPANY, a corporation, Defendant and Respondent. Civ. 20695.

Page 1000

286 P.2d 1000

135 Cal.App.2d 245

John C. RITCHIE, in Individual; John C. Ritchie and John Burroughs, individually and as co-partners doing business under the fictitious firm name and style of All American Nut Co., a co-partnership, Plaintiffs and Appellants, v. ANCHOR CASUALTY COMPANY, a corporation, Defendant and Respondent.

Civ. 20695.

District Court of Appeal, Second District, Division 3, California.

Aug. 25, 1955.

Abraham Gottfried, Beverly Hills, for appellants.

Moss, Lyon & Dunn, Gerold C. Dunn, and Henry F. Walker, Los Angeles, for respondent.

ASHBURN, Justice pro tem.

Plaintiffs appeal from an adverse judgment rendered after a nonjury trial in an action upon an insurance policy issued to them by defendant Anchor Casualty Company. Plaintiffs John C. Ritchie and John Burroughs do business under the name of All american Nut Co., a business of processing and selling food products, including refined peanut oil. In August 1950 they bought from defendant a 'comprehensive liability' policy, covering primarily liability from operation of automobiles; but is also contained certain riders, one of which is entitled 'Products Property Damage Endorsement for Attachment to Comprehensive Liability Policy.' So far as pertinent it provides:

'In consideration of the premium at which this endorsement is issued, it is understood and agreed that the Policy to which it is attached is extended to cover the liability imposed upon the assured by law for damages because of injury to or destruction of property, including the loss of use thereof, caused by accident and arising out of

'(1) the handling or use of or the existence of any condition in goods or products manufactured, sold, handled or distributed by the insured if the accident occurs after the insured has relinquished possession thereof to others and away from premises owned, rented or controlled by the insured.' (Emphasis added.)

In April 1951, while the policy was in force, plaintiffs sold to Post Trading Company, a partnership consisting of Max Sorell and Irving Horowitz, 10 drums of refined peanut oil at a price of $1,324.80. The buyers refused to pay for same, claiming that the oil was rancid and they had been damaged through its use. Plaintiffs herein, through an assignee, A. F. Stark, sued to recover the purchase price and the buyer, Post Trading Company, not only resisted that claim but also filed a cross-complaint seeking recovery of damages from plaintiffs herein (as cross-defendants) in the sum of $12,140.80, alleged to have been proximately caused by use of the rancid oil in manufacture of certain food products (corn chips) for which use the oil had been purchased. Plaintiffs furnished the cross-complaint to defendant insurance company, called upon it to defend pursuant to that provision of the policy which provides: 'It is further agreed that as respects insurance afforded by this policy the company shall (a) defend in his name and behalf any suit against the insured alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; * * *.' Defendant insurer refused to defend upon the ground that the causes of action alleged in the said cross-complaint were not within the coverage of the policy. After the Stark case had been partially tried (defendant refusing to have anything to do with it) plaintiffs made a compromise by which they dismissed the Stark complaint and Post Trading Company dismissed its cross-complaint, both dismissals being made expressly with prejudice. This action was brought to recover from the insurance company the sum of $2,574 alleged to be the cost of the settlement to plaintiffs, i. e. surrender of their claim of $1,324.80 plus reasonable attorney fees incurred in the Stark case in the sum of $1,250; they also seek recovery of an attorney fee of $750 in the instant action brought upon the policy. The heart of the trial judge's ruling is found in paragraph VII of the findings, reading as follows: 'None of the allegations os said cross-complaint pleaded or alleged an 'accident', or made claim for damages 'caused by accident' as those terms were used, and intended to be used, by the parties to the insurance policy. None of the allegations of said cross-complaint pleaded or alleged a 'liability imposed upon the assured by law', as such term was used, and intended to be used, by the parties to the insurance policy. None of the allegations of said cross-complaint pleaded or alleged the 'injury to or destruction of property' caused by any 'accident' occurring after the insured 'relinquished possession' of 'products sold', as those terms were used, and intended to be used, by the parties to the insurance policy.' This sustains defendant's arguments (1) that the cross-complaint alleges no accident, (2) that it alleges a liability created by contract and not one 'imposed upon the assured by law' and (3) that the accident, if any, did not occur after the insured had relinquished possession of the oil and away from the premises of insured. Appellant assails each of these phases of the ruling as legally unsound. Defendant introduced no evidence and the ruling is based upon the terms of the policy and the cross-complaint, supplemented by certain undisputed oral evidence, thus presenting questions of law upon this appeal.

The first question is whether the cross-complaint in the Stark case avers an accident. Respondent contends, and we agree, that the insurer's obligation to defend is measured by the terms of the insurance policy and the pleading of the claimant who sues the insured. It is so held in Lamb v. Belt Casualty Co., 3 Cal.App.2d 624, 630, 40 P.2d 311 and Greer-Robbins Co. v. Pacific Surety Co., 37 Cal.App. 540, 543-544, 174 P. 110. It is also established that in cases where no judgment has been rendered against the insured, the claim having been compromised, the question of the insurer's liability to defend remains open for adjudication in a later proceeding. Lamb v. Belt Casualty Co., supra, 3 Cal.App.2d 624, 631, 40 P.2d 311; Chrysler Motors v. Royal Indemnity Co., 76 Cal.App.2d 785, 788, 174 P.2d 318; see also 45 C.J.S., Insurance, § 937, p. 1073. But the settlement, or stipulated judgment entered thereon, becomes presumptive evidence of the liability of the insured and the amount thereof. Belt, 3 Cal.App.2d at page 631, 40 P.2d 311; Chrysler Motors, 76 Cal.App.2d at page 788, 174 P.2d 318.

The cross-complaint in question alleges five causes of action, two of which sound in express warranty and three in implied warranty of fitness of the oil for the use for which intended. Counsel for respondent say this is an action in contract and hence is not one to recover for an accident or upon a liability imposed by law.

Examination of the pleading reveals that it does factually allege an accident though it does not use that word. The draftsman of a complaint against the insured is not interested in the question of coverage which later arises between insurer and insured. He chooses such theory as best serves his purpose; if it be breach of contract rather than negligent performance of contract, he chooses the former; if it be negligence rather than warranty he alleges negligence; if he happens to choose warranty it may be an express one or one impolied. And when the question later arises under an insurance policy as to what the facts alleged in the complaint do spell,--for instance, whether they aver an accident,-- the complaint must be taken by its four corners and the facts arrayed in a complete pattern without regard to niceties of pleading or differentiation between different counts of a single complaint. And the ultimate question is whether the facts alleged do fairly apprise the insurer that plaintiff is suing the insured upon an occurrence which, if his allegations are true, gives rise to liability of insurer to insured under the terms of the policy.

It is settled that 'in case of doubt such doubt ought to be resolved in the insured's favor,' Boyle v. National Cas. Co., D.C.M.un.App., 84 A.2d 614, 616; see, to same effect, Lee v. Aetna Casualty & Surety Co., 2 Cir., 178 F.2d 750, 752-753; Pow-Well Plumbing & Heating v. Merchants Mut. Cas. Co., 195 Misc. 251, 89 N.Y.S.2d 469, 474; 8 Appleman on Insurance Law and Practice, § 4683, at page 5 of 1955 Pocket Part. In the Pow-Well case, which depended upon a showing of an accident arising out of a plumber's operations, the court said with reference to a complaint leaving the matter in doubt: 'In such a situation, it would seem to be the duty of the insurer to defend, if there is, potentially, a case under the negligence complaint, within the coverage of the policy. If, under the negligence complaint, a claim could be proved, which the insurer must pay, the duty to defend arises.' 89 N.Y.S.2d at page 474.

The instant cross-complaint alleges purchase by Post Trading Company of the oil from the Nut Company for use in preparation of food products in the course of the buyer's business; that the seller knew the intended use; that previous purchases of such oil had been made from chases of such oil had been made from the Nut Company by Post Trading and the oil was then satisfactory; that the particular batch of oil was used in preparation of food products; that it was not reasonably fit for the intended use; that it was so used without knowledge that it was rancid; that its condition was not discovered until after use or until after damage proximately caused thereby; that it did cause damage consisting of refunds to Post customers who had purchased unmerchantable food products from Post, cost of detergent and labor used in removing the effects of the rancid oil from machinery, cost of laboratory tests to determine cause of Post's bad products, damage to its trade name and good will, in the total sum of $12,140.80. In short it alleges use of rancid oil in the belief that it was sweet, with the unexpected...